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"Though the GDP growth rate will slow this year I think Colombia will continue to be very profitable for banks"
Francisco Aristeguieta, Citi Colombia |
Colombia’s financial institutions continue to be in good shape. They expect record profits for 2008, despite the global turmoil. For the first seven months of 2008, the Colombian banking system reported a net profit of $1.43 billion, a 30.9% increase on the same period in 2007.
"Last year was a record year for Citi Colombia in terms of profit and growth, but we expect to close this year with even better profit growth rates," says Francisco Aristeguieta, country head of Citi Colombia and head of the Andean region for Citi.
The number one local bank, Bancolombia, posted profits of Ps670 billion ($307 million), a 58% year-on-year increase. Foreign-owned units increased profits by 30.3% overall, with Santander and Citi driving this increase. Citi’s credit card business has doubled in two years.
The banks’ profits have been boosted by rapidly expanding lending businesses. "Most of Bancolombia’s growth in profits so far this year came from its lending activities. I think we will see growth across our loan book but the retail business is more dynamic and growing faster than the corporate lending," says Sergio Restrepo, executive vice-president at Bancolombia. The bank’s loan book is 50% corporate lending, with only 12% of the loan book in mortgages. Restrepo expects growth in the mortgage market but thinks the leasing operation will be the most active as the regulators start to clamp down on consumer lending.
On August 13, new reserve requirements were introduced. Now deposits over 90 days need reserves of 6%, an increase from 2.5%, and cheque account deposit reserve requirements increased from 8.2% to 11.5%. "The impact of these changes in regulation will be important but they are very affordable. Colombia’s growth rate was impressive and is still high," says Restrepo.
In 2007, Colombia reported a GDP growth rate of 7.6%, and a foreign direct investment to GDP rate of 9.3% – the highest in Latin America. In 2008 this FDI figure is expected to be even higher. As investment continues to come into Colombia so bankers continue to be positive.
"Internal demand, driven by high levels of FDI, continues to be really strong and so I think this demand will be enough to maintain a strong and profitable financial system in Colombia," says Aristeguieta. "Though the GDP growth rate will slow this year I think Colombia will continue to be very profitable for banks. We continue to invest in the market aggressively and are very bullish on the country’s potential."
However, these high levels of FDI also expose Colombia to global problems. Foreign companies are linked to the global environment, so as more of them join the Colombian economy so the more exposed the country becomes to global movements.